Sterling bounces as retail sales rise

The Chancellor was given belated cause for cheer following the dismal economic
outlook in Wednesday’s Budget, after official figures for February showed
shoppers returning to the high street and an improvement in the public
finances.

Retail sales provided a bright spot among otherwise weak recent data. Sales rebounded by a better-than-expected 2.1pc, having dropped 0.7pc in January, with tablet computers and department stores enjoying a strong rise, according to the Office for National Statistics (ONS).

The boost came as the ONS confirmed that government borrowing fell sharply last month, putting it on track to meet the forecasts unveiled by George Osborne in his Budget. Borrowing in February was just £2.8bn excluding the bank bail-outs, £9bn less than February last year.

Manufacturing also showed signs of life following the industry’s shock contraction in the final three months of 2012.

A survey by employers group the CBI found that a balance of 22pc of companies expect growth in the industry in the next three months. There was also an improvement in export order books, with fewer companies reporting a contraction than at any time in the past three months.

Signs of growth will be welcomed by the Chancellor after the official forecast for this year was halved to 0.6pc and the Bank of England warned that there was a “50:50” chance of a triple dip recession.

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Weak growth has thrown the Govenment’s deficit reduction plans off track as tax revenues have collapsed while spending has risen. Compared with official forecasts in December, the Government will have borrow an extra £60bn over the next five years.

In the Budget, the Chancellor said borrowing would fall from £121bn to £120.9bn for the year to March 2013 – largely as a result of a surprise £11bn underspend by departments. The Institute for Fiscal Studies yesterday accused Mr Osborne of massaging the numbers so he could claim borrowing had fallen.

The claim was undone in the ONS small print, however, as the statistics office revised down its borrowing estimate for last year to £120.9bn – bang in line with the new 2012 forecast.

The improvement in borrowing in February was largely a result of £5bn of extra income from the sale of the 4G mobile spectrum and the decision to seize the cash surplus in the Bank of England’s quantitative easing programme.

Excluding the spectrum auction, tax receipts were £1.1bn higher than last year while spending was £800m lower. The national debt rose further to £1.16 trillion.

A Treasury spokesman said: “Today’s figures show that borrowing is down on this month last year, and well below market expectations.

“The numbers underline what the Chancellor said yesterday: we are slowly but surely fixing this country’s economic problems. The deficit is now down by a third, a million and a quarter new jobs have been created and interest rates are at record lows.”

The boost to retail sales last month was the biggest increase in almost a year and outstripped the consensus forecast of 0.4pc. The pound strengthened on the positive data, hitting a three week high against the dollar – rising 0.5pc to $1.5171.

The retail surge will revive hopes of a stronger rebound than the 0.6pc growth forecast for this year by the Office for Budget Responsibility yesterday.